Intel seeks NIS 3b tax break from Israel

The company is in talks with the Finance Ministry about tax due on a planned NIS 12 billion transfer out of the country.

Sources inform ''Globes'' that the Ministry of Finance is in intensive talks with Intel Corporation (Nasdaq: INTC), which wants to transfer NIS 12 billion out of Israel that it has accumulated from its regular operations in the country. Intel will be liable to pay half the amount in taxes if it withdraws the capital, and it is in talks with the Israel Tax Authority, the Tax Assessor in Jerusalem, and Minister of Finance Yuval Steinitz on a substantial tax break - NIS 3 billion.

Senior government officials familiar with the matter told "Globes" that, six months ago, Intel opened a pre-ruling process with the Ministry of Finance to transfer the capital out of Israel in order to cover part of its extensive investments in other countries. Israeli industry sources do not rule out that these investments are in Ireland. Other sources say that Intel wants to withdraw the money to obtain tax credits in the US, and that it will pay Israel $600 million in taxes when the withdrawal is completed.

Calculations by parties involved suggest that if Intel transfers the capital out of Israel, by law it will have to pay 25% in companies tax and another 15% as a dividend, common practice when transferring capital out of Israel. This is partly due to the government grants that Intel has received for its investments in Israel and large tax breaks it has been awarded under the Law for the Encouragement of Capital Investments. Over the past 15 years, Intel has received $1.4 billion in grants from the Investment Promotions Center, mainly to build its fab in Kiryat Gat.

Scandalous that there are negotiations at all

Senior officials contend that Intel's request for a pre-ruling ia an attempt to get a break on the dividend. "It's scandalous that someone is willing to negotiate with the company over this, since other companies' requests in the past for exemptions or breaks on withdraws of accumulated capital were denied," a top government source told "Globes". He added, "The Finance Ministry is liable to accept Intel's request and give it a tax break, even though this issue came up in the discussions on reforming the Law for the Encouragement of Capital Investments. Former Ministry of Finance director general Haim Shani believed that tax breaks ought to be given so multinationals would consider Israel attractive for investment, but then-Tax Authority director general Yehuda Nasradishi blocked the attempt at a very early stage."

Ministry of Finance sources believe that the talks on Intel's request will be concluded within weeks. They highlighted the talks' complexities, since they take into account former government grants, the contribution to the Israeli economy and critical issues related to the Capital Investments Law, the companies tax, and other issues. The Tax Authority has not made a final decision on the request. However, other government sources involved in the matter claim that Steinitz is involved to an unusual degree in the case, and that he has discussed it with Intel executives without prior coordination with the relevant officials from the Ministry of Finance and other ministries who have the authority to discuss it. The sources say that the Ministry of Industry, Trade and Labor plans to object strongly to giving Intel any tax breaks.

The Ministry of Industry said today, "The negotiations on this matter should be managed on the basis of the recommendations of the expert team which previously discussed it." A top ministry official added, "It would be better if Intel did not transfer the money out of Israel to build a fab in another country, and if instead it were to ask the state for money to build another fab here in a few years' time."

Intel said in response, "Intel does not manage its relations with government agencies through the press."

Published by Globes [online], Israel business news - - on May 24, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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